TORONTO - Falling mining and railroad stocks helped push the Toronto stock market lower Wednesday even as the U.S. Federal Reserve delivered what markets were expecting — another round of stimulus aimed at keeping the economy from slipping back into recession.
The central bank will sell US$400 billion of its shorter-term securities to purchase longer-term holdings, in a move that could ultimately reduce rates on mortgages and other consumer and business loans.
The Fed also reiterated that economic conditions dictate it will leave interest rates close to zero until at least mid-2013.
The S&P/TSX composite index fell 254.87 points to 11,955.01, while the TSX Venture Exchange was down 24.09 points to 1,703.78.
The Canadian dollar closed below parity with the greenback for the first time since the end of January the Fed announcement sent traders into U.S. Treasuries, losing 1.23 cents to 99.41 cents US.
Also, Statistics Canada reported early Wednesday inflation in Canada rose above the Bank of Canada’s comfort level last month. Higher prices for gasoline and food pushed the rate up four notches to 3.1 per cent.
The bank's mandate is to keep consumer prices within a range of one and three per cent, and as close to two per cent as possible.
Losses accelerated on markets as the Fed added that while it expects some pickup in the pace of the recovery in coming quarters, growth remains slow amid continuing weakness in labour markets.
The Dow Jones industrials fell 283.82 points to 11,124.84.
The Nasdaq composite index was down 52.05 points to 2,538.19 and the S&P 500 index dropped 35.33 points to 1,166.76 as some analysts questioned whether the Fed can really do more to fire up the economy.
"At the end of the day, I'm not sure there is much more they can do, they’ve already pulled down yields by saying that they were going to keep short-term interest rates at effectively zero for another two years," said Norman Raschkowan, North American strategist at Mackenzie Financial Corp.
"The bigger issue now is the political mess in the U.S. and Europe and the fact you need people to regain confidence in the political leadership and the ability of politicians to work together to address the problems."
The base metals sector was the weakest component, down 6.4 per cent even as December copper futures moved ahead four cents to US$3.76 a pound. Teck Resources (TSX:TCK.B) dropped $2.08 to $34.03 and First Quantum Minerals (TSX:FM) fell $1.15 to $16.79.
Mining stocks were negative most of the day after Tom Albanese, the chief executive officer of mining giant Rio Tinto PLC, said some of the company's customers are requesting delays in metals shipments.
He told the Financial Times "it is noticeable that markets are somewhat weaker" and this is "consistent with customers being cautious about the current state of business."
Also, the International Monetary Fund said Tuesday it was further downgrading economic growth prospects for a variety of countries, including Canada and the U.S.
"Economists are saying things are slowing but you're also seeing real businesses now giving some signs that things are softening," added Raschkowan.
Rio Tinto shares were down 3.4 per cent to US$51.29 in New York.
Railroad stocks pushed the industrials sector down four per cent as Canadian National Railways (TSX:CNR) declined $2.98 to $65.65. Canadian Pacific Railway (TSX:CP) shed $2.94 to $47.88 as its CEO, Fred Green, said the railroad doesn't expect to carry as many retail goods next year due to shaken consumer confidence but Asian demand for energy and other commodities continues to look strong.
The energy component lost 2.9 per cent as the November crude contract on the New York Mercantile Exchange moved down $1 to US$85.92 a barrel. Cenovus Energy (TSX:CVE) gave back $1.18 to $31.49 while Suncor Energy (TSX:SU) declined 76 cents to $28.13.
Canada-based Pacific Rubiales Energy Corp. (TSX:PRE) has halted pumping of 225,000 barrels of oil a day from its operations in Colombia because union workers protesting for pay raises and better health care have blocked roads in the region. It says the field that was idled Tuesday in southern Colombia accounts for a quarter of the South American nation’s oil production. Its shares dipped 85 cents to $24.50.
Financials were also lower after Moody’s Investors Service lowered some of the debt ratings for Bank of America Corp., Wells Fargo & Co. and Citigroup Inc., saying it is now less likely that the U.S. government would step in and prevent the lenders from failing in a crisis.
Also, Standard & Poor's downgraded seven Italian banks because of sovereign debt risk. On the TSX, Bank of Montreal (TSX:BMO) shed 98 cents to $57.31 while Scotiabank (TSX:BNS) fell 99 cents to $50.66.
The gold sector also weighed on the TSX as the December bullion contract on the Nymex was down $1 to US$1,808.10. Goldcorp Inc. (TSX:G) faded $1.11 to $51.51.
The International Monetary Fund on Wednesday issued a stark reminder of just how fragile the global economy has become. It said the global financial system is more vulnerable than at any point since the 2008 financial crisis. The European debt crisis is affecting its banking system to the point where banks may pull back on lending to conserve cash, which threatens to worsen growth in the region.
Meanwhile, the IMF said there are growing doubts that the U.S. lawmakers can forge the political consensus needed to reduce its growing budget deficits.
Traders also kept a wary eye on Greece as its finance minister said the country will have to take fresh austerity measures. Evangelos Venizelos made the comment a day after Athens moved a step closer to getting the vital bailout funds it needs to avoid a disastrous default next month.
If Greece were to default, European banks could lose billions of dollars.